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Walking backward into the storm

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Are we in a recession?  It is an interesting question because nobody can know for sure.  A recession is defined as two successive quarters of negative growth.  Okay, but how do we know if, in the quarter we are in, the economy is shrinking?  Again, we cannot know this.  This is because the latest data we have is for February 2022… and it showed an unexpected fall in growth to just 0.1 percent.  In the event that growth turned sufficiently negative in March 2022, then the first quarter of 2022 as a whole might have been negative.  And in the event that this negative trend continued through April and on through May and June 2022, then we would indeed be in a recession… but we will only know for sure when the data is published in August.

It is on this kind of uncertainty that economic policy is set.  On top of the slowdown in growth – which may have improved or worsened, but nobody knows yet – comes data for March showing a dramatic fall in retail spending, largely resulting from rising food and fuel prices.  Is this because households and businesses can no longer afford to buy, or are they reining in their spending in anticipation of higher prices in future?  Again, we do not know.  Certainly, food and energy retailers have warned that prices will have to rise in future.  At the same time, households and businesses face higher local and national taxes and utility bills.  And so, falling sales is likely a combination of both prices that have already risen and the expectation of price rises to come.

Crucially though, the lens through which economic policy makers are viewing the economic clouds gathering on the horizon is a financial lens which looks back fondly on the sunlit uplands of the pre-2008 years as some kind of normal.  All have become energy-blind as a consequence of decades of growing access to energy.  Few among them, for example, will remember a time – almost a lifetime ago – when energy shortages were endemic rather than artificially created.  The three-day-week imposed during the 1973-74 miners’ strike, coming on the heels of the OPEC oil embargo, served to remind those of us who were around at the time of what life in an energy-constrained economy could be like.  We have to go back to the 1960s for a time when energy supplies were unreliable.  But the 1960s and 1970s were an entirely different land in which most of us grew up in localised economies and without access to cars, telephones or electrical gadgets.  And so, unreliable energy was far more tolerable than it will be today.

Britain’s energy landscape changed dramatically back then.  The United Kingdom which emerged on the winning side of World War Two, was still a largely coal-based economy.  During the three decades following the war, it made the transition to a modern, oil-based economy similar – though on a much smaller scale – to the US model.  In the 1950s and 1960s, for example, electricity was generated primarily in small, town-based coal-power plants such as the now preserved Battersea plant in the centre of London.  Gas, too, came in the form of “town gas” formed from heated coal.  Transport, in the early 1960s, meanwhile was largely the coal-powered steam railways which were ruthlessly destroyed by the Beeching cuts.  Whereas the rest of Europe replaced its steam trains with electric locomotives, Britain followed the USA in adopting diesels – something we will likely rue in the months and years ahead.  Following the discovery of North Sea gas fields in 1965, the UK entered into a ten-year (1967-77) operation to convert its gas grid to run on natural gas.  During the same period, the old town-based power stations were phased out in favour of the much larger out of town power stations which have recently been decommissioned as part of the Net Zero policy.

Contrary to the tenets of finance-based mainstream economics, the best measure of the strength of an economy is in the volume and cost of energy available to it.  And one of the best measures of access to energy is access to light – something we take for granted today, but which, for most of humanity’s time on this planet has been – and on a global scale, still is – a luxury enjoyed only by the wealthy:

The impact of the industrial revolution is all too clear, as first gas lighting and later electric lightbulbs became common place in middle-class and later working-class homes.  And that trend also tracks the massive fall in the energy cost of energy of sources of all kinds – powering the spectacular levels of economic wealth that we have come to view as normal.

The UK energy transition – the switch from a coal-powered to an oil-powered economy also saw a big fall in the cost of lighting – although this trend was partially reversed by the oil shocks, strikes and stagflation of the 1970s.  Nevertheless, the cost of light continued to fall up to the point at which the North Sea fields depleted (1999) and Britain became a net importer of gas (2005).

The rise in the energy cost of energy – which appears as an upward tick in the price of light in the chart – is the beginning of an irreversible upward trend in the UK, which has seen the income of the bottom 50 percent of households decline since the crash of 2008 and is the reason why policy makers have been unable to secure the productivity gains which used to pull economies out of recession – productivity being merely the ability to convert surplus energy into useful work.

To our great cost though, it is not the bottom 50 percent, or even representatives of the bottom 50 percent, who get to make economic policy.  Those who do – perhaps epitomised by our tax-avoiding, billionaire Chancellor – have enjoyed rising financial fortunes throughout a period in which the foundations of Britain’s economy have been allowed to crumble.  These people are not just looking back fondly on a more prosperous age, they have continued to consume its fruit to the point that they can no longer conceive of the possibility that we might get to witness shortages of such fundamentals as food and energy later this year.

As I noted in my previous post, the recently published data pointing to a rapidly slowing economy relates to the period prior to the sanctions salad imposed on one of the most commodity-rich exporting countries on Earth.  Rather than the bitter fruits of war, the inflation, energy shortages and broken supply chains which are driving millions of households into fuel-poverty are the result of the self-inflicted wounds of an economically illiterate two-year lockdown policy.  More worrying though, they are but a blip compared to the deluge that is coming in the autumn, when contracts for Russian fossil fuels come to an end and when a largely unfertilised harvest falls far short of what is needed to feed eight billion humans.

Remarkably, the UK government has begun to develop a food strategy in an attempt to learn lessons from the disruption caused by the lockdown policy.  Although this, like Emma Haslett’s warning in the New Statesman“A food crisis is coming, and the government is sleep-walking into it.” – still views the coming crisis as a problem of prices and costs rather than absolute famine.  But with worldwide food shortages now baked in, it is short-sighted in the extreme to assume that countries like the UK, which has witnessed an explosion in foodbank use over the last decade, will not experience widespread hunger over the coming winter.

This is energy-blindness at its deepest.  While some of us may still have distant memories of the energy shocks of the 1970s, you will have to trawl through the residents of old people’s homes to find anyone old enough to remember the food rationing of the early 1940s.  Beyond that, we can only reference the partial histories of pre-industrial famines which would regularly take their toll on local populations beset by poor harvests.  Nobody in a previously energy- and food-rich country like the UK can begin to imagine the day when there is no food on the shelves, when the cupboards are bare, and when there is no relief in sight.  And yet, were the dollar system to collapse and Britain’s purchasing power fall into line with its real – non-banking and finance – economy then the kind of food shortages which led to uprisings in Cairo and Tunis in 2011 might be seen in Coventry and Telford in 2023.

Nor is there going to be a return to normal or a building back better.  Because, while the lockdowns and sanctions have accelerated the energetic collapse of the western economies, collapse of some kind was already inevitable.  That small, but growing increase in the cost of light beginning around 2004 in the chart above is not just an indication of the increased cost of oil and, particularly, gas to the UK.  It is also a measure of the additional cost of alternatives like non-renewable renewable energy-harvesting technologies (NRREHTs) and nuclear… each of which also depends upon fossil fuels in their manufacture, transportation, deployment and maintenance.  And as the cost of light rises, so too does everything else which depends upon increasingly scarce fossil fuels – including essentials like food and heating, as well as all of the discretionary goods and services which make life in a neoliberal economy vaguely tolerable.

Throughout my writing here, I have referred to the coming “storm.”  More perceptive readers will have noticed that I recently changed the subtitle from “the storm is coming, will you be ready?” to “the storm is breaking, are you ready?” – reflecting the acceleration of the process of collapse brought on by lockdowns and sanctions.  What I mean by “the storm” – is the three waves of collapse which are about to wash over us.  The first wave is economic – the inevitable collapse of all of the claims upon future energy which we think of as financial wealth.  These will likely evaporate via a combination of debt-defaults and supply-side inflation, as our fiat currencies are forced back into line with the true levels of energy and resources available to us.  This is the process which our political class refers to as a “cost-of-living crisis” – which they fondly and erroneously believe to be temporary.

The second wave will be more profound, since it involves an energetic collapse in which many of the processes that we rely upon break down as a result of insufficient energy.  We get a hint of the chaotic nature of this kind of “cascading collapse” in the unravelling of supply chains following the lockdowns.  An energetic collapse though, is more visceral since it involves a Liebig-style loss of one or more key components upon which widespread manufacture is based, causing everything which depends upon that manufacture to break down.  And, of course, it follows that everything that required that manufactured thing which depended upon that missing input will also fail in short order.

The final wave is an environmental collapse as the consequences of centuries of industrial scarring of the planet come back to haunt the survivors.  This includes – but is not limited to – climate change which is breaking down the cyclical patterns of seasons so that crop planting is becoming less predictable.  However, even if this effect does not amplify, the loss of soil fertility caused by decades of overproduction fuelled by fossil fuel-based fertilisers, herbicides and pesticides will leave future generations with unproductive dirt where once lay fertile soils, so that the impossibility of feeding more than 8 billion humans will be realised in the worst possible way.

If only we had known it, the period from the end of World War Two to the start of the twenty-first century was a golden age for those of us fortunate enough to live in the developed states.  But our tendency to look back on those decades as a “normal” to which we must somehow return – “Great Reset,” “Green New Deal,” “build back better,” “levelling up” … insert your slogan here – leaves us oblivious to the storm which is beginning to break over us.  A more rational species – or perhaps a more rational age – might have begun to face up to the challenges and tribulations to come by discussing how we might best live in an energy-constrained future.  Instead, we look set to squander the energy and resources that remain to us in pursuit of miasmic visions of futures which do not comport with the laws of thermodynamics… and this can only end badly.

As you made it to the end…

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