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There’s no going back now

Tory leadership debates are, apparently, so mind-numbingly banal that getting too close to one can render you unconscious.  It is even worse for those of us who actually lived through the 1980s and remember Thatcher as a divisive figure who permanently vandalised Britain’s economic base to the point where we could only pay our way in the world with oil revenues and City of London money laundering.  So, to witness a pair of Thatcher wannabees – all shadow and no substance – slugging it out over tax and spend policies which are nearly half a century past their shelf life is doubly tedious.

The similarity with those times is solely limited to rising prices – and even these have another cause.  In all other respects, the crisis unfolding all around us is very different, far worse, and likely permanent.  Take money, for example.  When Margaret Thatcher became prime minister, most Britons did not have a bank account.  Employers paid their workers in cash, which tended to have a high velocity – it could pass from customers to traders and back again without ever having to return to a bank.  And if some of that cash was set aside, most often it went into a building society account which functioned in the way many people wrongly imagine banks operate today.  In theory, this meant that the Thatcher government could exercise more control over Britain’s money supply than is the case today – they simply needed to cut the volume of new notes and coins going into the economy while also cutting public services and increasing taxes.  Nevertheless, as Simon Youel at Positive Money points out:

“Monetarism was a key influence for the early years of the Thatcher government (and to a lesser extent previous governments), and it was an abject failure even on its own terms. Policymakers struggled to find a measure of the money supply that was an adequate target, and inflation continued to rise despite their best efforts…”

As with the Volcker myth in the USA, modern British conservatives fetishize policies which Thatcher herself quietly abandoned in favour of deregulating banking and finance and handing currency creation to private banks.  Moreover, what “saved” Britain in the 1980s – at least for a few more decades – was not the peculiar lessons derived from 1920s Germany, but the massive flow of oil and gas from the North Sea.  At its height, Britain was pumping and selling more oil than Kuwait.  And the inflow of dollars from that trade allowed the Blair government to run up massive debts which can only be repaid so long as oil and gas revenues from the North Sea continue to grow.

So, here’s the first thing that makes Britain’s current crisis worse than anything we have seen before.  We had, collectively – private and public – run up a dollar denominated debt of $9,623,468,400,000 as of March 2020.  With interest rates rising since the pandemic, it is unlikely that the figure – which is nearly double the dollar debt of the next most indebted European state, Spain – will have decreased.  Most of that debt was generated on the assumption that Britain’s two key dollar-generating activities – oil production and money laundering – would continue to grow. 

The bad news is that British oil and gas production peaked in 1999 and had fallen 60 percent by 2010… by which time Britain had become – in 2005 – a net importer of oil and gas.  This is the second thing which makes this crisis both different and so much worse.  Like so many states blessed with the curse of oil, between 1979 and 2005, Britain became lazy.  We escaped the consequences of government vandalising of our productive economy by squandering oil and gas revenues on unaffordable imports and corporate dividends and bonuses.  If, today, we were forced to operate solely on the oil and gas that we produce domestically – perhaps because the pound had crashed against the dollar – then at today’s rates of consumption, we have somewhere between three and five years of gas and five to ten years of oil reserves remaining to us.  And this is only half of the story because, unlike the oil and gas we produced prior to the 1999 peak, what remains is far more difficult – and thus much more expensive – to produce.

On the bright side, Britain can still eke out a living on the crumbs which fall from the City of London’s money laundering table… right?  Well, in truth, that is pretty much what we had been doing since 2005 when our net dollar oil and gas revenue ceased.  It is no accident that so many dodgy oligarchs turned out to own large swathes of London property, Premier League football clubs and Tory politicians – we needed their dollars, so we turned a blind eye to how they obtained them.  It wasn’t just the émigré Russians either.  London has been open for business to dodgy dictators and corrupt business dealers from around the world.  As an old Monty Python sketch once put it, “we don’t morally censure, we just want the money.”

Which brings us to the third reason this crisis is different and so much worse… the virtue signalling of your Russophobic social media friends, along with the politicians and technocrats who share their feelings, have pushed us headlong into the most imbecilic and self-destructive sanctioning – aka theft – of the very dollar billionaires that London needs to attract if Britain is to avoid a massive sovereign debt default.  Yes, we may have laughed when Abramovich had his football team confiscated or when Deripaska’s yacht was impounded.  Indeed, some of us would quite like to take a similar approach to western oligarchs like Gates, Bezos and Zuckerberg.  But the reality is that these sanctions signal to the entire world that the City of London is no longer a safe place to park one’s ill-gotten dollars.  And so, in a short-term hissy fit, we have successfully rendered that $9.6tn debt unrepayable.

That isn’t the end of the problem either.  The behaviour of our leaders has rapidly accelerated the development of a new, commodity-backed BRICS currency which had clearly been in development since at least the financial crash of 2008.  Were such a currency to be launched – and it could happen within the next year or two – it would immediately destroy the west’s “exorbitant privilege” of printing dollars out of thin air and using them to buy cheap commodities and goods from the rest of the world.  If you imagine that the prices you are paying in 2022 are too high, wait until you have to pay the full price of imports you had previously been enjoying by exploiting the people in developing countries.

Nor do our woes end there.  A BRICS currency would immediately cover around a third of world trade.  That is, all of the trade which occurs outside the west, together with western imports from BRICS countries:

“Taken together, the expanded BRICS countries currently produce around 26% of global oil output and 50% of iron ore production used to make steel. They produce around 40% of global corn production and 46% of global wheat production. If these were all traded in the new reserve currency, it would instantly become a cornerstone of the world economy.”

What that means for those of us whose country is once again on the fringes of a dying empire, is that we need to find some means of securing the new BRICS currency if we are to continue importing all of those things – like food (Britain imports around 60% of the calories we consume) – that we had become accustomed to buying with dollars.  Which is why digging up the ghost of Thatcher is so perverse, because it is precisely at this moment that we need the output from all of those industries that she so casually allowed to close or offshore. 

Moreover, since it is impossible to rebuild even a fraction of the productive economy we used to have, the most practical approach to the growing crisis is to learn to live as far as possible within our – meagre – means.  By which I don’t mean the modest savings that the establishment media are still talking about in the vain hope that what we are experiencing is temporary.  I mean some pretty serious and painful switch to essentials of a kind not witnessed since the dark days of 1940-41.

To give some examples.  Gas is an essential feedstock for key fertilisers which – for now at least – we have to use if we are to replace at least some of the food we currently import in exchange for borrowed dollars.  It is also essential to the production of the non-renewable renewable energy-harvesting technologies which we have to deploy to mitigate the decline in fossil fuels.  And since we lack any serious means of storing renewable energy, for the foreseeable future gas will have to be used as a balancing fuel to even out the intermittency in electricity generation.  Many of those industries that remain to us – with which we can still trade for dollars and/or BRICS – also require gas for heat and/or feedstock.  But we only have a few more years of domestic production and will be unlikely to be able to afford a replacement.  And so, one choice we might have to make – and if we have to do it, then the sooner the better – is to put an end to domestic gas use entirely.  Domestic gas consumption accounts for roughly half of the total.  Thus, turning off the domestic gas grid would extend our gas reserves for a further three to five years, during which time we can work on alternatives which are simply impossible to deliver overnight.

Objectors will no doubt make the claim that there is enough shale gas in the Bowland formation to keep us supplied for another century.  And so, the sooner we get fracking, the better.  They may be correct… although I doubt it.  First, similar claims in the USA – which has more favourable geology, geography, and laws – turned out to be wildly inaccurate.  Far from a century of gas, the US shale plays contained some eight to ten years’ worth.  In the UK, the geology is far less favourable – some geologists argue that the network of faults running through the twisted and tortured deposits mean that any gas which had been there has long since vented into the atmosphere.  Even if there is some gas there, early attempts to extract it proved too expensive.  Not least because drillers are restricted to those parts of the formation away from towns and from infrastructure like railways and roads – Britain is not like the open plains of North Dakota.

In practice, some combination of expanded domestic production and cuts in use is to be expected.  But my main point still stands, gas is too precious a resource to squander it on heating and cooking which – with appropriate grants, subsidies and tax breaks – can be passably done with electricity.

Food is another precious resource that we may need to take a very different approach to.  Fortunately, the kind of calorie loss that we are looking at in the short term as global food shortages – caused by the impact of gas shortages on fertiliser (and by the insane policies of some governments) – are roughly the same as we need to lose to overcome the obesity crisis.  Getting supermarkets to be less picky about the food they reject and switching from processed foods to cooking from raw ingredients may well stave off actual famine in the short-term but require a change in the way the economy works so that people have more time to prepare and cook food.

In the longer-term, a less wasteful approach to food will also aid a transition to organic farming which is inevitable now that fossil fuels are depleting.  We are going to have to do it eventually, so the sooner we begin the transition, the easier it will be.

Diesel is the lifeblood of the modern economy and, for better or worse, remains a precious but depleting resource.  But as with so much of the life we have been living, it has been squandered in a manner which cannot be afforded if we are obliged to fall back on our own production – not least Because George Osborne outsourced a large part of Britain’s diesel refining capacity to Russia.  Britain’s railways, its heavy road transport and most of its agricultural and manufacturing machinery will be reliant on diesel for years to come.  It follows, then, that we have to dispense with using diesel for private motoring… again, some form of scrappage scheme comes to mind as a fairer approach than simply pricing people out of driving diesel cars.  Furthermore, since for every 30 units of diesel we get from a barrel of oil we get 40 units of petrol, it follows that we need to shift as much of our transport to petrol (and alternative fuels) where this is possible.

As with gas, we might bemoan the loss of mobility here, and no doubt there will be attempts to boost domestic production.  But the reality is that, even if we do open a few more – mostly expensive – small deposits, we are looking at a few extra months of supply rather than a new oil bonanza.  Sooner or later – by which I mean sometime in the next decade – we are going to have to swap our cars for bicycles and public transport, so putting off the decision just means more pain later on.

Research and development funding is a less obvious target for change.  However, it is one of those areas where government policy can still have a huge impact.  At the moment, however, it is an area which seems to belie the idea that we have a “climate emergency.”  Surely if climate change is urgent – I would argue it is, but it is less immediate than resource depletion – we would expect our brightest minds in our best universities and corporate R&D departments to be working flat out on solutions, mitigations and alternatives.  But for the most part, research funding continues unencumbered by the needs of a growing part of the population.  As with the economy in general, there is a gulf between essential and discretionary research.  And in the current crisis research needs to focus on such things as developing alternative energy sources, overcoming the intermittency/storage problem, and working out how to optimise land use to feed the population.

This is what I meant by a “brown new deal” as I set out in my last book, Why don’t Lions Chase Mice?    In effect, we prepare for the worst while hoping for better.  Or, more practically, the minority of people with the knowledge, skills and experience – and this is one thing that has to be undertaken globally – to realistically develop a different energy system should be afforded all of the resources – public and private – we can spare to develop them.  Meanwhile, the rest of us begin the shift in our lifestyles from the excessive discretionary consumption of the post-war decades to a new and less material way of life as the age of shortage begins.

It should go without saying that, unlike the scheme offered by the likes of Klaus Schwab and Bill Gates, any such dematerialisation of our way of life has to begin at the top.  This is because history teaches us that continuing to eat prime steak while telling the little people to eat brioche or crickets ends with guillotines in the public square. 

More immediately and practically, nobody is going to vote for such dramatic declines in their material standard of living if the wealthy get to continue as if nothing is wrong.  We are either all in this together or we just collapse individually… So, Rishi and Liz, what was that you said about tax cuts…

As you made it to the end…

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