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The age of dissonance

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As the surplus energy available to the economy declines, so the number of things that we can do in theory but can no longer do in practice will grow.  This is the inverse of the technological efficiencies won in the course of three centuries of industrialisation – the peak of which occurred at some point in the last quarter of the twentieth century.

The two obvious apex technologies were the Anglo-French Concorde – the only supersonic passenger aircraft to operate commercially – and the USA’s Saturn Five rocket and associated technologies which propelled three men at a time to the Moon and back.  We didn’t forget how to do those things, and theoretically we could repeat them given enough time and resources.  But energetically, they are now beyond us – the energy cost of doing them is far greater than any benefits they might offer in return.  The humble automated car wash turns out to be a more mundane technology that is disappearing in the rear-view mirror.  It is simply cheaper to pay someone to hose down a car, or cash-strapped car owners can do it themselves.  And following peak oil in November 2018, and with the ensuing energy crisis – exacerbated by lockdowns and economic warfare – gathering pace, we can expect many more of our supposed technological feats to turn into stranded assets.

Another technology – in the broadest sense of the word – that looks set to go the way of the dodo is the once ubiquitous shopping high street.  The once prestigious department stores were already in freefall before SARs-CoV-2 began its world tour.  But two years of lockdowns have devastated retail businesses of all kinds, leaving shuttered-up shopfronts along every high street in the country, with the Welsh city of Newport claiming the record for having a third of its former shops empty.

Many will blame online retail for the collapse of bricks and mortar shopping.  This though, is more a convenient distraction from the true cause – the collapse in demand from the majority of the population as they have been obliged to switch from discretionary to essential spending in the years following the 2008 crash.  Indeed, while the income of the top ten percent has gone from strength to strength, the income of the bottom half of the population is lower today than it was in 2008.  As Nick Hanauer famously reminded anyone who was listening a decade ago, the top ten percent are not about to buy up all of the discretionary goods which the rest of us can no longer afford.  Insofar as online retailers have been able to hold down prices by not having to pay for physical stores, this has allowed a degree of discretionary spending that would not otherwise have occurred.  But the broad trend is that discretionary shopping is a technology that we used to be able to operate but which is increasingly beyond us.

Ironically, given the waves of bankruptcy in recent years, department stores may turn out to be the only ones that survive… but only if they return to their original, nineteenth century purpose of selling expensive luxury goods to the very rich.  With the price of energy – and thus of everything that depends upon energy – spiralling out of control, the days of mass consumption of discretionary goods and services is already behind us.  As even those who might previously have been considered “well off” face higher energy, food and fuel costs, there is simply not enough demand left in the economy for a retail sector which – until recently – employed a third of all British workers.  And, of course, as retail declines and all of those people have to fall back on Universal Credit, demand will crash even further.

Keep this hard energetic-economic reality in mind when you consider the latest government wheeze for tackling the blight of boarded-up shop fronts.  Landlords – because it has to be their fault, and not, say, an out-of-date business rates system or the raft of red tape imposed by local councils – are to be forced to hand over their empty shops to the local council, which will then auction them to mythical entrepreneurial business owners or local voluntary groups.

At face value, nobody is going to defend landlords… except that the majority of commercial property on UK high streets is owned by pension funds.  Indeed, pension funds have already lost out as commercial rents have been forced down by retailers who can demand lower rents under the threat of simply walking away.  Moreover, many landlords have already turned to local voluntary groups in an attempt to fill empty shops, often rent-free – charities being exempt from business rates if their main beneficiaries are local people – since this saves the landlord from paying business rates.  Nor is there a long queue of would-be retail businesses desperately seeking high street stores.  The reason we have empty shops is that voluntary organisations don’t want or need them, and retailers don’t have demand for them.

Step back a little, and we can observe the one thing which is likely to grow in the coming months and years – the dissonance between the cause of the problem and the proposed (non)solution.  We can also glimpse another dimension of the coming economic storm – technologies like high street shops are going to become “stranded.”  Even the option of converting former retail buildings into residential units, which has been widespread in the last decade or so, is likely to become too expensive to be worthwhile – not least because even as the price of building materials is going up, people’s ability to pay rents or meet mortgage payments is rapidly declining.

The demise of high street shopping may pale into insignificance compared to the catastrophe which is about to undermine that symbol of modern living, the private motor car.  For the moment, the only recognised threat is from the disrupted supply chains which have left manufacturers without the computer chips they need to build new cars.  And even though this problem is likely to become permanent as the world switches away from the dollar system, most economists and politicians continue to regard it as a temporary problem.  The same is true of the way policy makers are treating the big showstopper – rising fuel prices.  The assumption is that, as with supply chains, we merely need to readjust as the world comes out of lockdown.  In the west, there is also the desire to blame rising fuel prices on Russia’s invasion of Ukraine (even though Russian oil and gas were excluded from the sanctions).  The reality though, is that these have merely accelerated the pace at which oil shortages feed into the economy.

The assumption in the UK. – and the western economies as a whole – is that we simply need to put all of those climate change policies on hold in order to open up untapped reserves of oil.  But there is a reason why those deposits have remained untapped.  This is that they tend to be in smaller and harder to access fields like Cambo in the northeast Atlantic.  In order to return to affordable fuel prices, we must find new deposits of cheap oil… but we burned our way through those decades ago.  Digging up oil that must sell for more than $120 per barrel or more to break even does nothing to get people back into their cars, because at that price we can’t afford to run them.

Nor do electric vehicles offer any real solution.  Not least because of the lack of charging infrastructure.  With the economy facing electricity shortages for the first time since the 1970s, every EV plugged in at home constitutes yet another increase in the price of domestic electricity.  So much so that the UK government is already considering a ban on home charging at peak hours.  Less well known is the change to contract terms that most energy companies made at the beginning of the switch to smart meters – lowering the amount of electricity a home can demand before higher rates are levied.  Those charging EVs at home may well face much higher tariffs, not least for the political reason that a rich person’s EV charge will be seen as the cause of impoverished grannies dying of hypothermia as food and energy prices continue to increase.

As with discretionary shopping, car ownership is moving to something akin to the immediate post-war years, when only wealthy people could afford to run their own car.  Motoring of some kind will likely be possible for people who can afford small, lean-burn cars, or who are prepared to brave the elements riding one of the smaller, fuel efficient motorcycles and scooters.  Services like Uber may also survive for a while in the big cities.  But cycling and – especially – walking loom large in our collective future.  This may be more tolerable on this side of the Atlantic, where most towns and cities are still “walkable.”  But it poses a major problem for anyone living in the suburban sprawl which grew up during the days of happy – and cheap – motoring.

To borrow a phrase from Tim Morgan here – “we should not mistake inevitability for imminence.”  While I am sure that, just as in 2008, people posted their house keys back to the banks, with rising interest rates we will witness car lessees posting their car keys back to the finance companies.  But the stranding of private cars, like that of high street retail, is a trend rather than an event.  It is something that we are already living through, and which will no doubt accelerate along with our economic woes.  But the more important point is that rather than face and lean-into these trends, economists and decision makers will increasingly insist that they are an anomaly, and that a return to “normal” simply must be just around the corner.

It is this dissonance as things break down which is more troubling than the breakdown itself, since it is the dissonance which will continue to divide us into tribes… each accusing the other of standing in the way of a future prosperity which simply cannot exist.  Meanwhile, actions which we might take to cushion the blow of falling surplus energy will not be taken as public, politicians and elites alike seek ways of turning back the clock to a lost age of cheap and easy energy.

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